November 02, 2006

In the Monetary Policy Review on Tuesday, the Reserve Bank of India (RBI) raised the repo, the rate at which it lends to banks, by 0.25 per cent to 7.25 per cent, while keeping the reverse repo, the rate at which it borrows from banks unchanged at 6 per cent. "
Banks having liquidity problem may charge a higher price for personal loans, real estate, equity market, consumer goods loans," Oriental Bank of Commerce Executive Director, Allen C A Pereira, said. Welcoming RBI's policy stance, he said repo rate hike signals that productive sectors should get sufficient credit while non-productive sectors should pay a little more. Those banks having less liquidity will have two options before them -- to mobilise resources from public through deposits or borrow from the Reserve Bank.
Many weaker banks borrow from RBI as it is not easy to mobilise adequate funds from public due to competition with bigger banks and the hike will increase their fund cost. Punjab National Bank Executive Director K Raghuraman said RBI's repo rate hike is a caution about credit growth, specially for banks who are aggressive toward market. "
Those banks borrowing from RBI to meet liquidity demand may jack up interest rates," Raghuraman, said. Both PNB and OBC said they see stable interest rate scenario and may not raise lending rates as they are comfortably placed liquidity wise. State Bank of India on Tuesday said the central bank's mid-term credit policy review would help keep interest rates stable, which in turn would benefit the crucial infrastructure sector. "
We are very happy with the fact that interest rates will remain stable for some time, which will enable the infrastructure sector to take off," SBI Managing Director T S Bhattacharya, said. Bhattacharya also hailed the RBI's move to increase the External Commercial Borrowings (ECB) limit by $250 million, which would help the infrastrucuture
// Source: timesofindia.indiatimes.com //